For which property type is the sales comparison approach usually the primary approach?
Correct Answer
D) A single-family residence
In practice the sales comparison approach is the primary approach for single-family residences, smaller multi-residential and smaller commercial and industrial properties. Special-purpose properties lack sales, and large income properties are usually valued by income.
Why This Is the Correct Answer
Option D is correct because in practice the sales comparison approach is the primary approach for valuing single-family residential properties. These properties sell frequently, and buyers typically compare them directly with similar homes. That gives the appraiser enough comparable data to estimate value reliably.
Why the Other Options Are Wrong
Option A: A ski resort
Option A, a ski resort, is a special-purpose property with few comparable sales. Its value is usually analyzed through income or cost approaches rather than primarily through sales comparison.
Option B: A large regional office tower bought for cash flow
Option B, a large regional office tower bought for cash flow, is purchased for its income stream. Investors focus on income, so the income approach is usually primary for such properties.
Option C: A public utility network
Option C, a public utility network, is a special-purpose property that rarely sells as a whole. Comparable sales are scarce, so the sales comparison approach is not usually primary.
Many sales, sales approach
The more often similar properties sell, the more the sales comparison approach leads. Homes sell often; ski resorts and utility networks rarely do.
How to use: Use this to match property types with the approach most likely to be primary.
Exam Tip
Ask how often the property type sells and why buyers buy it; frequent owner-occupant sales point to sales comparison, while income-driven purchases point to the income approach.
Common Mistakes to Avoid
- -Using sales comparison as primary for special-purpose properties with no sales
- -Overlooking the income approach for large investment properties
- -Assuming one approach is primary for every property type
Concept Deep Dive
Analysis
This question tests when the sales comparison approach is the primary valuation method. It works best for property types that sell often enough to provide comparable data and whose buyers compare similar properties directly. Single-family homes fit that pattern, while special-purpose and large income properties usually do not.
Background Knowledge
The sales comparison approach is strongest when there is an active market of similar properties. Besides single-family homes, it is often primary for smaller multi-residential and smaller commercial and industrial properties. Special-purpose properties and large investment properties typically rely more on the cost or income approaches.
Real-World Application
An appraiser values a three-bedroom house in a subdivision with dozens of recent sales. The sales comparison approach receives the most weight in reconciliation. The cost approach is developed only as support, and the income approach is not developed because the home type is rarely rented.
More Sales Comparison Questions
Supported adjustments are: non-market financing $10,000, GLA $36/sf, garage $3,500 per car, pool/spa $12,500. A comparable identical to the 2,800 sf subject sold for $267,000 with non-market financing. What is its adjusted price?
Using GLA $36/sf and non-market financing $10,000: a 3,100 sf comparable sold for $277,000 with non-market financing; the subject has 2,800 sf. Bath count differences are not adjusted. What is the adjusted price?
Using garage $3,500 per car and pool/spa $12,500: a comparable with a 2-car garage and a pool/spa sold for $268,000. The subject has a 3-car garage and no pool. What is the adjusted price?
Using GLA $36/sf, garage $3,500 per car and pool/spa $12,500: a 2,600 sf comparable with a 2-car garage and a pool/spa sold for $264,000. The subject is 2,800 sf with a 3-car garage and no pool. What is the adjusted price?
In a neighborhood with declining values and marketing times over six months, what must Fannie Mae lenders confirm about the sales comparison analysis?
A house is a 4,000 square foot home in an area of 2,000 square foot homes. How must the appraiser treat this over-improvement in the sales comparison grid?
According to the Interagency Appraisal and Evaluation Guidelines, which items should an appraisal’s market conditions discussion include?
A comparable listed at $420,000 and sold for $399,000. What sale-to-list price ratio (sale price ÷ list price) does this indicate?
An appraiser wants to describe the neighborhood boundaries in a Fannie Mae report. Which approach is acceptable?
Which of these is listed by Fannie Mae as a sales or financing concession?
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